As you may have heard, banking giant Citigroup has been hit with a round-house punch by the economy, and is getting rescued by the federal government. The company's value has dropped in half over the last week, and Citi announced that 20 percent of their workforce -- 53,00 workers, are to be laid-off.
According to a bail-out plan by the Treasury Department, Federal Reserve and FDIC, Citigroup and the Feds, a pool of approx. $306 billion in troubled assets need to be addressed, with Citi taking on approx. $29 billion and the taxpayers getting saddled with the rest.
And, as you may have also heard, Citigroup is engaged in a long-term naming rights deal with the New York Mets for their new $600 million stadium set to open next year. The rights deal – the largest in U.S. sports history – is for $400 million at $20 million annually over 20 years.
With the two issues (Citi’s collapse and the naming rights deal with the Mets) understandably, questions arise about priorities.
The unfortunate matter is, the deal between the Mets and Citi isn’t always being viewed from every angle.
That doesn’t mean that politicians and other interests aren’t willing to jump in with both feet before considering the matter in full.
Maybe they are well meaning, but word yesterday is that two New York City Council members believe that with the bailout, the name on the Mets new stadium should be reconsidered. Staten Island Republicans Vincent Ignizio and James Oddo say the ballpark's name should be changed to Citi/Taxpayer Field.
To add to the political fodder, Rep. Elijah Cummings (D-Md.) said, in a statement Monday, "This type of spending is indefensible and unacceptable to Citigroup's new partner and largest investor: the American taxpayer."
Understandably, Mets COO Jeff Wilpon and reps from Citigroup declined comment.
I’m here to say, good for them.
First off, can we all agree that jobs are more important than a name on a stadium. Few, if any, would dispute that. But, dissolving or restructuring the deal isn’t as easy as it seems.
Citi negotiated the deal with the Mets in 2006 when the economy was stable, and revenues for marketing were plentiful for the banking giant. With the Yankees saying that they would not offer up the naming rights for their new stadium, interest was high to get the rights for the Mets stadium, given the New York market.
The sponsorship market is a far different world now.
The Mets would certainly sue Citigroup if they attempted to back out of the deal. Trying to find a corporation to pick up the naming rights would be tough, but reaching $400 million would be a near impossible feat given the sour state of the economy.
From the Mets' perspective, why should they be punished? As the saying goes, "A deal's a deal."
Citi, ergo the taxpayers, would wind up footing the bill for a legal battle. A source close to the Mets reports that the deal with Citi allows for little wiggle room for Citi to back out.
“It’s binding. There’s little doubt that Citigroup would have difficulty walking away from the deal.”
And therein lies the problem.
In the often up-is-down world of business, Citi may be saying, “We can pay $20 million a year, and get some face time with the name Citi Field. Or, we can pay for a legal battle that we could easily lose, and wind up paying for most of the agreement anyway, without the benefits.”
This isn’t to say that there aren’t options beyond all or nothing for the rights agreement. Here’s some possible scenarios that could play out:
Citigroup merges or is purchased – There has been talk that Citi may be sold outright or that they could be part of a merger. In that case, the name could shift from Citi Field to “ Field.”
The Deal Gets Backloaded – Much like the flexible mortgage rates have caused the economic woes in the housing sector, the Mets and Citi could restructure the deal with the amount of installments lessened early on, with annual payments escalated over time.
Citi Takes the Lumps and Walks Away – A long-shot, but an option: Citi and the Feds tell the Mets that they’ll offer up a large up-front payment on the total agreement, throw in some extra for monetary damages for not fulfilling the total amount, and walk away. This type of deal would most likely come with pressure from the government.
The Feds Kill the Deal Entirely - This is the one option the Mets fear most. With so much federal money coming Citi's way, the government could simply dissolve the deal all together. What recourse the Mets would have is unknown, although suing the government might be an option.
As mentioned, the deal between Citigroup and the Mets isn’t as easy as it seems. It also isn’t as if the Mets are standing back and not worrying that their golden goose isn’t in peril. For months, sources inside the organization have said that the Mets brass have been worried about the deal unraveling.
We said last week, it may be that nothing short of a total collapse by Citigroup will derail the record naming rights deal. That was before the government said they would bail them out. It seems a near certain bet that the biggest naming rights deal in U.S. history will become the most talked about in the weeks and months ahead.